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March 27, 2009

Cloud control

By Richard Waters in San Francisco

Published: March 25 2009 20:16 | Last updated: March 25 2009 20:16

A
revolution that is sweeping through corporate data centres is the
untold secret of modern business. The information factories of the
digital age are going through a transition that is every bit as
significant as the advent of the moving assembly line was to
manufacturing nearly a century ago.

Companies
that master the new techniques of information processing, or make the
right bets about when to hand over control of that operation to someone
else with greater skills, stand to reap significant benefits in the
form of lower costs and greater usability of their data. But this all
comes with significant risks: not only of falling behind as information
processing enters a new industrial-scale era but, conversely, of losing
control of one of a business’s key assets – its information.

The
shift is happening largely out of view. Guarded by the priesthood of
the IT department and locked away from prying eyes for security
reasons, data centres operate beyond the average business manager’s
realm of consciousness. The places where the inner workings of business
are conducted – where invoices are processed, transactions recorded and
corporate secrets stored – are often taken for granted.

Every
now and then, though, something happens to shine a light on this arcane
world. Such a moment came last week, with signs of a realignment among
some of the world’s leading technology concerns.

Cisco Systems, the world’s biggest maker of networking equipment, said it would start selling servers, the back-room machines that are the workhorses of corporate computing, setting up a showdown with Hewlett-Packard and IBM. It also emerged that IBM was in the late stages of negotiations to buySun Microsystems, bringing together two of the biggest suppliers of servers and other technologies for data centres.

The
maturing of the IT industry and a steep slide into recession provided
the immediate impetus for these moves. But something else is at work.
After a technology era characterised by the rise of the PC, a new
centralisation is taking place in computing and the biggest suppliers
of technology are being forced to respond. A catchphrase has been
coined to describe this new approach: “cloud computing”.

If
the past quarter-century was characterised by a decentralisation of
computing, with information processing and storage placed on every
desk- and laptop, the coming era is set to bring greater consolidation
of computing power in “clouds”, or large-scale, distributed computing
facilities. Even Microsoft, a company that came to dominate the PC era,
is racing to create one of the world’s biggest computing clouds,
although it insists this will co-exist with existing forms of personal
computing for years to come.

The economies of scale that come
from consolidating computing in fewer places, and the availability of
fast internet connections that make it easy to tap into this resource,
account for the shift. As a result, data centres – whether run by large
companies or by internet services groups such as Google – are assuming an increased share of the world’s information processing workload.

There
are striking signs of how this reconfiguration is taking shape.
According to Rick Rashid, head of research at Microsoft, a handful of
internet companies, including his employer as well as Google,
Microsoft, Yahoo and Amazon.com,
is already buying 20 per cent of the world’s output of servers. The
massive new data centres these companies are building harness an amount
of computing power that far exceeds anything assembled by private
companies before, he adds.

These companies use much of this brute
computing power to run their own online services, including internet
search and electronic commerce. Increasingly, though, they are also
offering their capacity as a substitute for the data processing and
storage that takes place on their customers’ machines.

This comes
in two forms. Some is made available in the form of services. For
instance, rather than store documents and run a word processor on your
own PC, you can now just access Google Docs, which mimics many of the
functions that Microsoft’s Office software has carried out in the past.
In the business world, this approach is known as “software as a
service” and involves the provision of corporate applications such as
accounting or customer relationship management by companies including Salesforce.com and NetSuite.

Small
companies in particular are turning to these services to escape the
headache of maintaining their own technology. Patricia Seybold, founder
of a small consulting business, is typical of those who no longer see
any need to run their own IT: for e-mail, for instance, she relies on
Google’s free Gmail service. “It’s much nicer getting something for
free than having to pay Microsoft and manage a server,” she adds.

The
second new form of outsourced computing involves the provision of raw
data processing power and storage capacity: companies buy access to
someone else’s data centre to boost their own capacity at times of
need, or even to replace it altogether. Amazon.com has emerged as the
unlikely early leader in this business. More than half the online
bookseller’s computing resources are being consumed by other companies,
which run their own applications in its data centres, says Werner
Vogels, Amazon’s chief technology officer. Customers include the New
York Times and Nasdaq.

The same forces that are leading to the
aggregation of computing power in the internet services companies are
also prompting many big companies to centralise more of their internal
computing resources, taking advantage of economies of scale that are
bringing down the unit cost of information processing and storage. For
instance, General Electric’s
data centres now consume about 45 per cent of the company’s IT budget,
up from 25 per cent three years ago, as it builds up a more centralised
resource that can be used by all of its divisions, says Greg Simpson,
GE’s chief technology officer.

While internet companies are
creating “public clouds”, many big companies like GE say they are
creating private ones of their own, even as they weigh the benefits of
shifting some of their computing to the outside services suppliers.

There
is a danger, however, in overstating the near-term impact of new
developments of this nature. “The ‘cloud’ is definitely hyped right
now,” says Dante Malagrino at Cisco. He describes the term as a “fancy
way of saying ‘a network of resources’ ”. It is also the case that in
IT, there is seldom anything really new under the sun. The
centralisation trend is a return to life before the fragmentation
brought about by PCs and the proliferation of department-level servers
in business to handle tasks such as e-mail. Forerunners of the cloud
have gone by names like “utility computing” and “on-demand computing”.

Sweeping
visions of this kind are easy to lay out yet take years to unfold.
Companies do not abandon their earlier investments in technology but
layer new technologies on top of old, creating a patchwork of
information architectures. Most data centres resemble archaeological
digs. Nor will change happen overnight. Companies are deeply cautious
about how they handle their information assets and do not experiment
with new IT systems lightly. Concerns about security and reliability
will act as a drag for years.

“Cloud computing” has become useful
shorthand for a trend that has shown signs of accelerating as
software-as-a-service and the outsourcing of raw computing power are
adopted more widely. Yet there are reasons why some computing will
continue to take place locally that go beyond a desire by users to keep
more direct control of their own data. For a start, technological
advances mean many companies will find they can come close to matching
the scale economies of giant internet service companies, says Russ
Daniels, chief technology officer of cloud computing at
Hewlett-Packard. “There are fewer barriers to entry than there were two
years ago,” he says.

Much will depend on how
companies use the new resources – and how they meet the rising
expectations of customers who have been taught to expect instant
gratification by modern internet services. “All the things Google and
Amazon do so well, many of our clients need to do themselves,” says
Irving Wladawsky-Berger, a former IBM executive who led that company’s
early internet efforts. “In order to be able to scale to deliver
large-volume services, you need an industrialised approach.”

The
idea of having to compete with Google, probably the most advanced
engineering force on the planet, is likely to fill the average IT
manager with dread. Yet the world of centrally delivered services has
room for many players, says Mr Wladawsky-Berger. “Google is at the high
end of scalability – not many companies will do that – but the world is
full of other services.”

Being able to tap into massive data storage and processing
power at low cost – and, equally important, having access to it at the
drop of a hat rather than waiting for an IT department to procure and
provide it – could also add a new level of intelligence to how
companies deal with their customers. By analysing everything they know
about a customer and relating this to what they know about other
customers’ behaviour, companies should be able to make smarter
assessments in real time, says Mr Daniels at Hewlett-Packard. “You can
make better recommendations to customers because you have better
insights,” he says.

For managers, that same plentiful supply of
IT could make it economical to try out new business ideas that would
have fallen by the wayside before. “How many ideas do business managers
have where they say, ‘If only we could try this out’?” asks Pat Kerpan,
chief technology officer of Cohesive Flexible Technologies, a cloud
company that assembles automated software.

Ultimately,
the effects of this greater centralisation of computing power on
business and society are hard to predict, says Microsoft’s Mr Rashid.
Every shift such as this to a new computing architecture is accompanied
by predictions that derive merely from past experience, he says: for
instance, the idea that users will use word processing services “in the
cloud” rather than software on their own PCs. Yet the most far-reaching
effects of new technology are normally ones that were not anticipated.

According
to Mr Rashid, that might include the ability to amass much larger
volumes of data on scientific topics and subject them to deep analysis,
potentially yielding advances in science that were impossible before.

As
with many aspects of cloud computing, such visions are still more dream
than reality. With economic as well as technological forces driving the
new centralisation, though, they could take shape not only quickly but
in surprising ways.

INFORMATION PRODUCTION LINE STARTS VIRTUALLY TO ROLL

Behind
the rise of cloud computing lies a process revolution that has been
taking place on the information production line. It has been compared
to the impact on the automotive industry of Toyota’s manufacturing
system, which brought a step change in quality and a reduction in costs.

“The
typical IT organisation is used to a highly customised way of doing
things,” says Russ Daniels, chief technology officer of cloud computing
at Hewlett-Packard. Adopting more standardised systems “will turn IT
into more of a manufacturing process than an art”, he adds.

In
turn, that could lead companies to decide they no longer want to invest
in staying on the cutting edge of the information processing business.
The danger, says Mr Daniels, is that this could leave companies without
the skills needed to understand and direct their IT.

The catalyst
for this new industrialisation of IT has been a simple but powerful
idea: unchaining computing tasks from the physical machines on which
they take place. Until recently, companies bought a new server each
time they added a new application. The need to commission, house,
maintain and power all those servers has become one of IT’s biggest
costs.

The antidote to this has been a technology known as
“virtualisation”, which makes it possible to run more than one
application on each machine. In essence, each application is tricked by
the virtualisation software into thinking it is running on its own
dedicated server: many new “virtual machines” can exist on a smaller
number of actual servers.

Breaking the link between a computing
task and the hardware of individual computers does not only lead to
more efficient use of capacity: virtual machines can be shifted between
servers as they are running, or even between data centres, with no
interruption.

This virtualisation trend has taken hold quickly
over the past two to three years. A year ago, says Greg Simpson, chief
technology officer at General Electric, his company bought a new server
in 85 per cent of the instances when it had a new computing task to
handle: by the end of last year, that proportion had fallen to 50 per
cent, with “virtual machines” making up the difference.

It is a
short step from there to shifting some computing tasks from a company’s
own computers to those of an external service provider.

March 21, 2009

McCain speaks up for Geithner

By Edward Luce and Demetri Sevastopulo in Washington

Published: March 20 2009 21:00 | Last updated: March 20 2009 21:00

Tim
Geithner, the embattled US Treasury secretary, should be given a chance
to succeed, says John McCain, the former presidential candidate, who is
the first prominent Republican to speak up in Mr Geithner’s defence
amid growing calls for his resignation.

Speaking to the Financial
Times, Mr McCain said that the “perfect storm” over AIG “has been as
explosive in a short period of time as anything I have seen”.

EDITOR’S CHOICE

Mr
McCain, who was one of the few Republican senators to vote in favour of
Mr Geithner’s nomination after revelations of tax arrears, was speaking
at the end of a week in which the Republican Party has targeted Mr
Geithner amid mounting public anger over Wall Street bonuses.

“Everyone
acknowledges he needs help,” said Mr McCain, in reference to the Obama
administration’s difficulty in recruiting nominees to the Treasury
department, where Mr Geithner remains the only official to have been
confirmed.

Mr McCain also distanced himself from Republican “righteous
indignation” over Mr Obama’s budget tactics. Many of Mr McCain’s
colleagues fear Mr Obama will use the congressional “reconciliation”
process, which enables the majority to circumvent an opposition
filibuster, to smuggle through healthcare reforms and energy cap and
trade in the budget.

Mr McCain said that a congressional
short-cut could be employed by the administration that had been devised
by Republicans and used by George W. Bush to push through tax cuts.
“Republicans invented this,” he said. “I don’t like it but there are
chickens coming home to roost.”

Royal Geographical Society’s next expedition

Pioneering members of Captain Scott’s expedition in 1911 wave goodbye to the last boat as they prepare to explore Antarctica

The
Royal Geographical Society is housed in a red-brick building just south
of Hyde Park, at a junction of Kensington Gore and Exhibition Road that
London cab drivers call “hot and cold corner”. Its façades are
decorated, respectively, with statues of the most famous explorer of
Africa, David Livingstone, and the polar explorer Ernest Shackleton,
hero of perhaps the greatest survival story of all time.

In
1998 when I was 27 and had just left the Financial Times after two
years in the Philippines I was planning an ambitious 1,200-mile
exploration by camel across the old slave routes of the
little-travelled Libyan Sahara. Among my first ports of call was the
RGS. I wanted to consult its unrivalled store of maps and charts of the
world’s least hospitable places. Inside, it fairly hummed with
potential expeditions, a stopping-off point for people about to set off
to the remotest parts of the world. The walls of the society’s
wonderful auditorium carry the names of great RGS-backed explorers of
the past, including Sir Richard Burton, the great Victorian who, with
John Speke, made two journeys into central Africa to locate the source
of the Nile. And, of course, Captain Robert Falcon Scott, whose third
expedition to the South Pole in 1912 ended in his death. Through their
often heroic efforts the society advanced our understanding of the
world.

On that first day I was there to study in the fusty
grandeur of the panelled Map Room. I would politely ask the supervisor
for what I needed and he would disappear, locate each map of the
interminable desert wastes, and bring it to my desk. He might, I
thought, have been there since Scott of the Antarctic set off across
other, icier, wastelands.

Originally founded as a gentlemen’s
dining club in 1830, within 30 years the RGS had established itself as
the heart of what is now often described as the “heroic” age of
expedition. As I explained what I was planning in Libya, an expedition
to the historical centres of the Saharan slave trade, the RGS’s
in-house expedition advisory centre put me in touch with some of the
most notable desert explorers. They included Sir Wilfred Thesiger, then
88, and the charming octogenarian Rupert Harding-Newman, veteran of the
Long Range Desert Group in the second world war. The latter was
invaluable in helping me to learn the essentials of desert navigation.

Without this first encounter with the RGS, my Libyan journey (which I later wrote about in my first book, South From Barbary)
might never have happened and I would probably never have become a
fellow of the society. There are 10,500 fellows, all of whom have been
nominated and approved for fellowship, and then have the right to vote
on RGS resolutions.

That year – 1998 – was the last time that
the Royal Geographical Society (with the Institute of British
Geographers, to give it its full title) organised, paid for, and
launched one of its own expeditions, an extensive study of the marine
environment in the south-west Indian Ocean, involving 200 scientists
from 21 countries. The team generated huge quantities of scientific
data and trained hundreds of local officials in marine education and
management. Since 1998, the RGS has given money to many expeditions,
but it hasn’t launched a major expedition in its own right.

Perhaps
this is unsurprising. By 1998 the age of heroic exploration was long
over – possibly the last great “expedition” was the RGS-assisted
trans-Arctic expedition of 1967-69, described by then British prime
minister Harold Wilson “as a feat of endurance and courage which ranks
with any in polar history”. Three men and 40 dogs, carrying 32 tonnes
of food and equipment, took more than 15 months to cross 3,800 miles of
frozen wilderness. It was the longest sustained polar journey in
history and almost certainly the first surface crossing of the Arctic
Ocean.

Historic images from a quest that met disaster

The
attempt by Ernest Shackleton to cross Antarctica via the South Pole in
1914 ended in disaster when the Endurance became trapped in pack ice, writes Dominique Brady.

Now,
32 enlarged photographs of the expedition, taken by the expedition’s
official photographer Frank Hurley, will be going on display from
Tuesday at the Royal Geographical Society headquarters in London. The
images document the slow pace of life on the ship and become
increasingly dramatic as the ship was first trapped, then crushed, by
pack ice. It took a further 20 months before the 27-man crew reached
safety.After being forced to abandon ship, the crew lived on the ice
floes for almost six months before sailing to Elephant Island to await
help. Shackleton rescued his men by sailing to South Georgia to call
for help on a perilous 1,300 km 16-day journey.

The
Earth has now been almost entirely charted (though we know little about
its oceans). Yet there is still a world to be discovered by teams of
geographers and scientists working together to improve our
understanding of the fragile balance of life on our planet. As the
distinguished environmental scientist James Lovelock laments in his
book The Vanishing Face of Gaia: A Final Warning:
“Observation in the real world and small-scale experiments on the Earth
now take second place to expensive and ever-expanding theoretical
models” of questionable reliability. “Our tank is near empty of data
and we are running on theoretical vapour,” he argues. There is a
compelling need for “more tiresome and prosaic confirmation by
experiment and observation”.

The RGS has a record of mounting
data-collecting expeditions of world-class importance. In 1987, for
example, John Hemming, then its director, led a 200-strong expedition
to the Maracá rain forest project in Brazilian Amazonia. At the
invitation of the Brazilian government and in collaboration with the
National Amazon Research Institute, researchers surveyed the rich
forests of the riverine island of Maracá, together with four related
programmes on forest regeneration, soils and hydrology, medical
entomology and land development. The success of the project led to an
accord between British and Brazilian scientists for long-term research
in Amazonia. It represents, I believe, the RGS at its finest.

Yet
the past decade has seen the society shift its focus towards academic
geography, and away from exploration and field research. In 2006, for
instance, the expedition advisory centre was re-branded “geography
outdoors”. It was a move widely seen by fellows as a downgrading of
expeditions and exploration within the society. It was, said the
veteran explorer Robin Hanbury-Tenison, when I interviewed him for a
newspaper, “mealy-mouthed”.

In May 2006 Alistair Carr, a
Suffolk-based travel writer and desert explorer, went to the RGS
archives and called up a copy of the society’s original, hand-written
Royal Charter. He was looking for something that might back his hunch
that the direction of the RGS had, in recent years, veered too far from
exploration. Poring over the hard-to-read text, he found this: “The
Royal Geographical Society, for the advancement of Geographical Science
... has since its establishment sedulously pursued such its proposed
object ... by carrying out, at its own expense, various important
Expeditions in every quarter of the Globe, and by assisting other
Expeditions with grants of money and otherwise ... ”

Carr
realised that this could be a chance to change things. “I started
talking to people all over the country – scientists, zoologists,
entomologists, marine biologists, the British Antarctic Survey, the
Natural History Museum and so on,” he says. “The more I spoke to these
people, the more I realised there was this crying need for these
multidisciplinary expeditions and that the society was losing this
wonderful opportunity. With all those unknowns out there, in the
oceans, rainforests, mountains and deserts, there’s so much more to be
done. I felt the RGS should be leading the way.”

Over the next
few months, he assembled a group of six like-minded RGS fellows,
including myself, all in their thirties. Carr already knew Tim
Bosworth, an environmental scientist, and the others were all keen to
meet – so in April 2007 Carr, Bosworth, and I met up in London with Jo
Vestey, an award-winning photographer, explorer and broadcaster Oliver
Steeds and James Aldred, a rainforest veteran and specialist wildlife
cameraman.

Over the past two years, we have exchanged numerous
letters with the RGS leadership. We have sat down with the director and
president and members of its council. Our request was that the RGS
should return to launching its own multi-disciplinary scientific
research projects and expeditions.
The RGS itself says that over the past four years it has supported more
than 250 projects involving 1,250 people in 118 countries with more
than £600,000 in funding.

Our
small group talked and the RGS listened. But, while we believe the
society’s recent emphasis on geography and education is commendable, we
feel that this must not come at the expense of its important core
activity – running its own expeditions. So this month, our campaign,
which we are calling the Beagle Campaign in honour of Charles Darwin’s
1831-1836 expedition – assisted by the RGS – to South America, went
public.

Two days ago, a parcel was delivered to Lowther Lodge,
the society’s home. It contained a special resolution, instigated by
Carr and his five original signatories, calling for a return to the
society’s own expeditions. The resolution calls on the RGS to honour
its obligations as set out in its Royal Charter of 1859: in a word, to
explore.

For a special resolution to be taken to a vote by the
RGS, it has to be signed by six fellows and supported by at least 40
more. Our resolution has been co-signed by 80 of the most distinguished
figures in the fields of exploration, geography, science, literature
and travel. They include
Sir Ranulph Fiennes; George Band, who was at 23 the youngest climber to
scale Everest for the first time in 1953, along with his equally
distinguished successors Sir Chris Bonington and Doug Scott; and the
modern polar explorers Pen Hadow, who is currently in the Arctic, and
Tom Avery, the youngest Briton to reach both poles.

Justin
Marozzi (centre), Jo Vestey, Tim Bosworth, Alistair Carr and Oliver
Steeds at the Royal Geographical Society headquarters in London last
week

Other supporters include Ian
Swingland, a world expert on conservation and biodiversity, Andrew
Mitchell, an authority on forest canopies and climate change,
anthropologist Dr Audrey Colson and cave specialist Andrew Eavis.

The next step for the RGS would be to call a special general
meeting and send out ballots to its 10,500 fellows. The wording of our
resolution modifies its charter’s requirement for the RGS to fund
expeditions “at its own expense”. It calls, instead, for a return to
sponsored expeditions. (Major RGS expeditions from 1977-1998 include an
impressive list of corporate backers: Shell, Cathay Pacific, British
Airways, Wimpey, Honda, Land Rover.)

In response to receiving the resolution this week, the
society’s initial statement said: “The RGS-IBG would like to make it
clear that the society’s objective, as set out in the royal charter of
1859, is the ‘advancement of geographical science’. The ways in which
the society does this is a matter for the trustees at any particular
time. The society continues to support exploration constantly.”

If
it’s no longer mountain summits or poles we seek, so much as greater
knowledge about climate change, growing urban populations, poor water
supply, forced migrations and a host of other unknowns, our knowledge
of species on the planet still has an enormous way to go. Marine
biologists estimate that there may be up to 50m new species within the
largely unexplored oceans, and up to 10m new species of insects, many
of them in the world’s endangered tropical rainforests.

For a
model of the sort of expedition that we hope will once again set out
from South Kensington, look at Hadow’s latest Arctic expedition, an
international venture funded by sponsors, including the insurance group
Catlin, and bringing science and exploration together in an effort to
answer one of the most critical environmental questions of our time:
how long will the Arctic Ocean’s sea ice cover remain a permanent
feature of our planet?

In 1980, the RGS celebrated its 150th anniversary with the publication of To the Farthest Ends of the Earth,
a history of the society by Ian Cameron. In a foreword, RGS fellow Sir
David Attenborough said the next 150 years would witness different
sorts of RGS expeditions, “But the stimulus that sends its members on
arduous journeys to remote places will surely remain the same; and the
society, thankfully, will continue to serve them.”

The Beagle
Campaign offers thousands of fellows and members – together with the
public – the chance to make our voices heard. We welcome all support
from anyone interested in this cause. If successful it will help ensure
that the society, in addition to supporting research projects, starts
to field its own major expeditions once again. The future of the planet
deserves nothing less.

Outside Edge: An easy answer to grade inflation

By Tim Harford

Published: March 20 2009 19:54 | Last updated: March 20 2009 19:54

The news that Cambridge university
is to demand A* rather than A grades at A-level has provoked yet
another frenzy of concern about grade inflation – the name normally
given to the process by which C grades become B grades and then A
grades and, before you know it, all shall have prizes.

Grade
inflation, like real inflation, seems widespread, afflicting not just
UK schools but the Ivy League. Stuart Rojstaczer, who maintains
GradeInflation.com,
reckons that grades at US private universities have risen from an
average of 2.3 out of 4.0 in the 1930s to 3.3 today. That rate of
inflation, by itself, would be manageable – 22-year-olds do not need to
compare grades with 92-year-olds. (Grade hyperinflation would be
another matter entirely: students would have to take examinations, be
awarded marks and then apply for jobs or university places within a
matter of hours, before their grades were devalued.)

Alas,
grade inflation is a misnomer. True grade inflation would mean each
grade was equally devalued, with A grades superseded by AA, AAA and
AAAA as new labels for superlative performance became necessary. One
hundred per cent would become 110 per cent.

Yet examiners are
reluctant to award 110 per cent and there are no AAAA grades. What we
see is not inflation but a classic price distortion. Eventually all
students will get A grades and they will be meaningless. A* grades are
a small, belated step in the right direction.

Grade distortion
is a serious affair. Students and their teachers are forced to switch
to grey market transactions denominated in alternative currencies: the
letter of recommendation, for example. Like most alternative
currencies, these are a hassle.

Grade distortions, like price
distortions, destroy information and oblige people to look in strange
places for some signal amid the noise. Students are judged not on their
strongest subjects – A grade, of course – but on whether they also
picked up A grades in their weakest. When excellence cannot be
displayed, plaudits go instead to those who deliver pat answers without
stumbling – politicians in training, presumably.

The obvious solution to grade distortion is to ration grades so
that no matter whether standards are high or low, only the better
students can receive the top grades. Unfortunately, like any
competitive system, such policies can create ill-feeling towards
high-flyers, and even sabotage.

If grade rationing is
unacceptable, perhaps grade distortion should be replaced with true
grade inflation, freeing grades from the worldly confines of a maximum
100 per cent or A*. As long as everyone understands the game, what harm
if the typical student of tomorrow is awarded an AAA grade? The rating
agencies might even find a new line of business here – handing out an
AAA for nicely packaged dross is something they should be able to
master.

The writer is the FT’s Undercover Economist. His most recent paperback is ‘The Logic of Life’

Rediscovering bawdy musical comedy

By Lucie Skeaping

Published: March 20 2009 23:18 | Last updated: March 20 2009 23:18

Today
we think of a jig as simply a dance but in late 16th- and early
17th-century England the word was used to describe a short musical
farce featuring songs, dancing and slapstick comedy. By Shakespeare’s
time, jigs were established in the London theatres as the standard
afterpiece to more serious theatrical fare. They could be satirical,
sentimental, libellous or riotous, and often downright obscene,
offering a shameless and subversive antidote to the plays that preceded
them.

The Elizabethan poet and dramatist Thomas Dekker wrote: “I
have often seene after the finishing of some worthy tradjedy or
catastrophe in the open theatres, that the scene after the epilogue
hath beene more blacke about a nasty bawdy jigge, than the most horrid
scene in the play was.”

The origins of the stage jig are probably
to be found in the oral tradition, in the dancing, clowning and misrule
of the carnivals, May Games and festivals held in rural communities
from earliest times. As these local entertainments moved into
professional hands, the term was used to describe anything from a solo
song, dialogue ballad or dance to a full-blown mini-drama.

Cuckolded
husbands, adulterous wives, milkmaids, whores, city wide-boys, muggers
and thieves – the same stock characters turn up again and again. We
also meet lecherous soldiers, fishwives and a variety of street traders
who, as they call out their wares, get drawn into the plot. One of the
most popular characters, and often the unwitting hero of the piece, was
the gullible bumpkin who, with his country dialect, was a constant butt
of ridicule for urban audiences.

The two most celebrated
performers of jigs were strongly associated with the folk tradition.
Richard Tarlton (1530-1588) was, perhaps, the most famous clown of his
era and a favourite of Elizabeth I. He often made his stage entrance
“attired in russet with a buttoned cap at his head” playing the pipe
and tabor, instruments characteristic of a folk dancer.

Although
none of Tarlton’s jigs survive, those of his successor Will Kemp have
fared better. Kemp, a clown in Shakespeare’s company, was one of the 26
actors named in the First Folio, and the original interpreter of such
comic parts as Dogberry in Much Ado About Nothing
. He described himself as one “that hath spent his life in mad jigs and merry jests”.

With
their delight in innuendo and rude gestures, jigs seem to have been a
source of continual trouble to the authorities and disapproval from the
literary world. Shakespeare’s rival, the playwright Ben Jonson, loathed
the “concupiscence of jigs and dances”, believing they prevented
audiences from appreciating plays; Hamlet, after expounding some
particularly vulgar dialogue, calls himself “your only jig-maker”. A
contemporary satirical poet, Edward Guilpin, dismissed the “whores,
bedles, bawds and sergeants” who “filthily chant Kemp’s Jigge”, noting
how “many a cold grey-beard citizen”, on leaving the playhouse fired up
with lust, would sneak into “some odde noted house of sin” – easy to do
as theatres, bearbaiting pits and brothels were situated close together
on London’s south bank, outside the formal control of the city
authorities.

By 1612, jig performances began to attract so many
criminals and disorderly crowds – who often visited the theatre for the
jig alone with no intention of seeing the main play – that “an order
for supressinge of jigges att the ende of playes” was issued, with
instructions to arrest any players who “do persist in these outrages”.
But the effect was temporary. Audiences, educated and ignorant alike,
still demanded their jigs and during the years of the Interregnum
(1649-1660), when Oliver Cromwell declared the performance of plays
illegal and ordered the closure of the theatres, the jig came into its
own (music and dance acts were not covered by this law), drawing
riotous holiday crowds to the makeshift stages at fairs and the
temporary booths at Bankside.

The jigs were set to popular tunes
of the day and, apart from the few short sections of spoken text, one
can assume that most were through-sung. We can never know for certain
when the actors might have ignored the tunes altogether and simply
spoken the words over the music, and at certain points in the scripts
we find the instruction “the Tune Changet”’.

When I began my
research for the new recording with The City Waites, our group
specialising in the broadside ballads of 17th-century England, it was
frustrating that only about half the surviving jigs print any specific
tune titles. Yet the texts can offer clues: a scene that opens with the
words “As ye came from Walsingham” must surely have been sung to the
popular Elizabethan tune known as “Walsingham”. Elsewhere the
repetition of the words “jog on” suggests an accompaniment of the old
ballad tune of that name (also referred to in The Winter’s Tale),
while the refrain “which nobody can deny” is the title of a version of
“Greensleeves” that fits the jig text perfectly. Where no tune
connections could be made, I researched suitable tunes from
contemporary collections, including Playford’s The English Dancing Master, the Fitzwilliam Virginal Book and various lute and viol anthologies.

For
the choice of instruments I looked to those commonly heard in the
theatre, tavern and village green of the period. Parts for cittern (a
kind of Elizabethan banjo, popular in barbers’ shops), recorder and
bass viol for a “Tarlton’s Jigge” are found in the Cambridge University
Library, and I also made use of Tarlton’s famous pipe and tabor.

An
account of an English troupe performing in Germany in 1599 describes
them playing lutes, citterns, fiddles and pipes, while my choice of
percussion was partly inspired by Shakespeare’s Bottom the Weaver in Midsummer Night’s Dream:
“I have a reasonable good ear in music. Let’s have the tongs and the
bones.” Certainly the many references to dancing suggest a band large
enough to make a lusty sound, especially if we take into account a
noisy audience and an open-air environment. In our recording, the five
instrumentalists of The City Waites play not only lutes and citterns
but curtal, recorders, three-hole pipe and tabor, hurdy-gurdy,
bagpipes, fiddle and bass viol. Eight singers – early music
specialists, actors and folk artists – provide the voices.

After
the restoration of the monarchy in 1660, when the theatres were at last
re-opened, jigs found a place at civic functions and livery feasts, and
occasionally between acts in the indoor theatres. But by the end of the
17th century, under the censure of moral respectability, they had
fallen into decline. Nevertheless, the influence of this peculiarly
English style of music-theatre continued to reverberate in Purcell’s
semi-operas and John Rich’s pantomimes and ballad operas. Theatre
managers such as actor David Garrick in the 18th century customarily
propped up a faltering play with a popular afterpiece, and the spirit
of the jig can still be perceived in today’s Christmas pantomimes with
their stock characters, dancing and slapstick.

Fewer than a dozen
English jig texts have come down to us, some damaged or incomplete.
More have survived in Dutch and German, almost certainly translations
or adaptations of English jigs exported by travelling players. During
the 1580s, Kemp and his colleagues toured the Netherlands, Germany and
Denmark where their repertoire had a powerful influence on continental
Singspiel.

The jig texts are laden with period references,
innuendo and contemporary underworld cant. What went on between the
lines, though – the bawdy gestures, dance steps, instrumental
interludes and improvised spoken asides – belonged to each individual
performer, much like the ornamentation of baroque concertos. With so
little surviving information, we can only guess.

‘The
English Stage Jig: Musical Comedies from the 16th and 17th Centuries
for the Merriment and Delight of Wise Men and the Ignorant’ by The City
Waites is released on Hyperion on April 1; www.hyperion-records.co.uk

March 18, 2009

Custom-made for success

At
6ft 3in and 190lbs, Joseph Skerritt is taller and lankier than the
average man. For many years, it was his lot in life to be unable to
find a well-fitting dress shirt.

“For jeans and T-shirts it’s not
a big deal but dress shirts and suits? That is a pain,” says Mr
Skerritt. “Either the neck is too big, the sleeves are too long, or
it’s way too baggy around the waist.”

Two summers ago, during
an in­ternship in China, Mr Skerritt (pictured above) visited
Shanghai’s Fabric Market where hundreds of stalls peddle fabrics,
threads, patterns and anything else needed to make clothes. He chose
some col­ours, got measured by a tailor, and within a week he had a set
of new, perfect-fitting shirts.

“That’s when I got my first taste
of custom clothing,” says Mr Skerritt, 29, who recently finished an MBA
from MIT’s Sloan School of Business. “I thought, ‘This is cool. What if
I started a company that sold these over the internet?’ ”

Today,
Mr Skerritt is the founder of Proper Cloth, a New York-based e-commerce
dress shirt company that allows shoppers to mix and match fabrics,
using computer-generated tailoring for the right fit. Its early success
largely derives from being one of a growing number of start-ups that
use blogging and social networking websites in place of conventional,
more costly marketing. Revenues since launch last year have grown at a
rate of 40 per cent a month, and it is on track to be profitable by
July, with earnings of about $30,000 a month.

Mr Skerritt
emptied his personal savings, scraped together about $50,000 of
leftover student loan money, and racked up his credit card debt before
raising about $100,000 in seed money from friends and family. He says
that the use of social media, as well as being a less expensive form of
marketing, provides an easy way for customers to interact with the
company and each other. “We want to hear what our customers have to
say,” he says. “It’s useful to us and lets our customers feel connected
to and engaged with Proper Cloth.”

On Facebook, the company has
more than 150 “fans”, which means that whenever the company posts a
bulletin, or uploads a picture, it displays on the fans’ Facebook
pages. “It is convenient for them to see this information,” he says.
“It’s also easy for them to ‘share’ anything they find interesting on
Proper Cloth – such as shirt designs they like.”

Hustle, hard work and learning not to focus on VC funding

Joseph
Skerritt, who goes by the diminutive of Seph, invested much of his own
money in Proper Cloth because finding investors was difficult at first.
Most venture capital and private equity firms he pitched to wanted to
invest in pure technology-based companies. So his advice to budding
entrepreneurs is to not pay too much heed to venture capitalists. “VCs
are looking for the next ‘game changer’ and they’ll be unimpressed with
your ‘small’ $100m opportunity,” he explains. “That’s OK. Not all
start-ups are right for VC funding.

“The time you spend
obsessing over each letter in your pitch deck is time you take away
from building a real business. Success is not raising capital. It’s
creating a profitable, sustainable business. If you can demonstrate the
ability to do that, you’ll have plenty of interested investors.
Meanwhile, prepare to bootstrap.”

He also stresses the hard work
required. “Starting a company is not a nine to five activity. Get ready
to work really hard – all the time,” he says. “And it’s about getting
stuff done – not hanging out at the office – so learning how to stay
focused and productive is critical. Your hustle is your edge.”

Twitter, the mini-blogging service that allows users to send and read
other users’ real-time updates, also attracts prospective customers.

More unusual is the company’s own blog, written by Mr Skerritt
and guest bloggers, which focuses on work, life and men’s fashion. It
rec­eives about 6,000 hits a month.

Rachel Eisenberg, a
business-school friend of Mr Skerritt who took on the company’s
marketing plan, says it has used catchy, ac­tionable blog post titles
that have a good chance of coming up in a typical Google search – an
example of search-engine optimisation.

A post last month, for
instance, “What to buy your boyfriend for Valentine’s Day” had 900
direct views, while “What to wear on New Year’s Eve” had 700 views.

Other
e-tailers that have had success with company blogs as marketing tools
include Las Vegas-based Zappos.com, which sells shoes, clothing and
other accessories, and grossed about $1bn in revenue last year.
Last November, when the company laid off 124 employees, Tony Hsieh,
chief executive and a popular Twitter user who has nearly 30,000
followers, broadcast the cuts – along with details about a generous
severance package – in an e-mail, on his blog and with Twitter.

Mr
Hsieh won plaudits from the blogosphere for the comprehensive way the
lay-offs were explained to workers and customers. This level of
engagement with customers usefully blurred the line between corporate
communication and marketing.

Wine Library TV, which promotes
straightforward wine tasting and links to an e-commerce site that sells
wines by the bottle, has also used social media tools. The company’s
zany chief executive Gary Vaynerchuk – dubbed a “social media
sommelier” – runs a video blog that daily attracts more than 80,000
viewers, from sophisticated oenophiles to those with untrained palates.
Devoted followers also convene on Wine Library’s active online
forum. Last year, the company made about $55m in revenue, according to
industry sources.

Meanwhile, the Student Loan Network, a website
offering financial aid advice and student loan services, has
increasingly used social media to its advantage. The company’s popular
Financial Aid Podcast, a six-days-per-week show available on iTunes and
other distribution services, gives advice on topics such as credit
cards, international student issues and scholarships. According to
industry obser­vers, the podcast is responsible for generating about
$10m in loans for the company.

Mr Skerritt, who has an
undergraduate degree in electrical engineering, knew that the key to
his business was the website. He need­ed to create an engaging online
shopping experience with detailed graphics, lush pictures and
interactive 3D models. He hired software developers in eastern Europe
to help build the applications.

With his website under
construction, Mr Skerritt hooked up with a fabric supplier in North
Carolina and enlisted advisers including social media entrepreneurs and
Bill Sand, who ran Brooks Brothers’ domestic custom shirt production
for 20 years.

Nevertheless, corporate lay-offs in the financial
sector and down­sizing at other companies have been hitting Proper
Cloth’s target demographic hard: young, professional males.

“Obviously,
if this were 2006 and everyone who graduated from business school was
signing on to jobs that paid $250,000 a year we’d have a lot of
low-hanging fruit,” says Mr Skerritt. “We don’t have that.”

However,
he says, the recession has expanded his customer profile, so that now
“I’m selling shirts to government workers in Louisiana, and school
teachers in Ohio”.

If the company is profitable by July as planned, Mr Skerritt
and Ms Eisenberg will draw modest salaries. The business is in the
process of securing an additional round of financing from an angel
investor and plans to branch out into women’s clothing, men’s suits,
and accessories within the next two years.

“Once you have a custom-fit shirt, you will never go back to off the rack,” Mr Skerritt says.

'Sesame Street' hit as gloom comes to toytown

The
home of Elmo and Oscar the Grouch ann-ounced yesterday that it would
eliminate a fifth of its 355-strong workforce as market turmoil eats
into its income and assets.

Sesame Workshop, the 41-year-old non-profit educational organisation behind the Sesame Street
television programmes, toys and community projects, said that it was
"not immune to the unprecedented challenges of today's economic
environment".

A spokeswoman did not elaborate on the reasons for
the move, but the workshop has relied heavily on donations from Wall
Street companies, large corporations and private foundations, all of
which have now begun cutting back on their philanthropic activities.

The
group's latest accounts - for the year to June last year - show that
"volatility in the financial markets" had depleted the investment
portfolio on which its long-term financial viability depends.

The portfolio recorded a $9.27m loss for the fiscal year, down from a $22.7m gain a year earlier.

Among its largest backers last year were Wall Street institutions that have been humbled.

Bear
Stearns had funded a programme to help children and their families
prepare for emergencies, while Merrill Lynch backed a global
citizenship initiative.

Support from backers ranging from
Wal-Mart and McDonald's to the United States Agency for International
Development helped the workshop report a 12.4 per cent increase in
revenues to $13.7m last year.

However, its net assets fell by $6.7m because of falling investment returns and rising spending on its website and new series.

The organisation was founded in 1968 to help children from low-income families prepare for school.

It
has expanded from its roots on the US public broadcasting system to
produce radio shows, books, magazines and online activities, and is
funding research into the role of new technologies in learning and
literacy.

It has also taken its brand of "Muppet diplomacy" to
trouble spots from Northern Ireland to Gaza, helped educate Tanzanian
children about malaria prevention, and supported military families
coping with deployments to Iraq and Afghanistan.

"After careful
review, we have concluded that we will have to operate with fewer
resources in order to achieve our strategic priorities," Sesame
Workshop said in a statement.

It added, however, that it remained
"optimistic about our future [and] more committed than ever to our
mission of helping children reach their highest potential here and
around the globe".

Iran battles to promote merits of marriage

By Najmeh Bozorgmehr in Mashhad

Published: March 9 2009 17:31 | Last updated: March 9 2009 17:31

After
a day-long journey on a rusty train, Afshin and his fiancée, Fahimeh,
along with 120 other couples, reach the holy northeastern Iranian city
of Mashhad to celebrate their state- organised mass wedding.

The
young couple say they are blessed that their first trip together is to
the shrine of Reza (765-818), the eighth Imam of Shia Muslims, and the
most popular honeymoon destination in Iran.

The
trip is part of a plan started more than a decade ago by the office of
Ayatollah Ali Khamenei, the supreme leader, to encourage “student
marriages”.

The organised weddings have brought together 40,000 students every year, out of a total student population of 3.5m.

These
are the children of the 1979 Islamic revolution, products of the baby
boom of the 1980s when Iran’s rulers were determined to strengthen the
“Islamic army” by encouraging more births.

But now one of the
regime’s biggest challenges is the army of educated people – not
fighters – who are coming out of universities.

Today’s youth –
60 per cent of the population is under 30 – are not as eager for
marriage as their parents. Better education, aspirations for
independence and difficult economic conditions have driven up the
marriage age for men from about 21 in the 1970s to 26 now, and for
women from 18 to 25 during the same period.

Mohammad-Javad
Ali-Akbari, the head of the National Youth Organisation, recently
warned that Iran was facing a “marriage crisis” and too many people
were having sex outside wedlock, which is illegal under Islamic law.

Insisting
that this predicament was “more dangerous than the enemy’s bombs and
missiles”, the organisation said that up to 15m of Iran’s population of
70m should be getting married but are prioritising education and jobs
instead. It warned that the marriage age in big cities was nearing 40
for men and 35 for women.

Conscious of the challenge, Iran’s
leaders have been scrambling to encourage marriage. Ayatollah
Khamenei’s sponsored mass weddings are the most prominent initiative.
But Mahmoud Ahmadi-Nejad, the president, also launched a special
marriage fund three years ago that offers cheap loans for new couples.

While
boys and girls are segregated until the end of high school, they are
allowed to attend mixed classes at universities, which worries the
clerics. Most importantly, girls, who now account for 65 per cent of
the university student body, have increasingly high expectations from
life, and want more than finding a suitable husband.

Many young
men, meanwhile, cannot afford to marry. The unemployment rate among
educated people is 25 per cent, and the average salary is $500 (€395,
£362) a month. Soaring housing prices, meanwhile, have forced young
people to seek second and third jobs to pay the rent.

Afshin and
his bride are a more traditional couple. He says marriage is essential
for his mental health, keeping him “away from sins” and from illegal
sex.

“I am concerned about economic issues but I’m not afraid,”
says Afshin, 27, a psychology student. “I don’t have a job, I don’t
have an apartment and neither my family nor my wife’s family can
financially support us.”

Fahimeh, 24, did not go to university
and believes a woman’s role is what conservative leaders of the
revolution stressed three decades ago in the constitution – to help
“restore the vital and much-appreciated task of motherhood”.

Ahmad-Reza
Dehghan, a representative of Ayatollah Khamenei who attends the mass
wedding, says marriage should turn into a “national concern” to meet
the youth’s “emotional, sexual, intellectual and social needs”.

The
ceremony in Mashhad is simple. Brides wear modest, floral chadors – the
head-to-toe cover – and light make-up, in what they say is a symbolic
celebration that challenges the idea that weddings have to be costly.

At
the end of the ceremony, each couple is promised a gold coin worth
about $200 from Ayatollah Khamenei and can expect another $100 in cash
from Mr Ahmadi-Nejad to be offered later. Students are given $4,000 by
the government and an $800 loan from their university.

Afshin
will use his share of the loans to pay the deposit on a 50 square metre
apartment in a lower-middle class area in eastern Tehran. Fahimeh says
she will help her family pay the dowry. The happy couple say they are
looking for a simple life. “This tendency towards modern ideas among
young people has shaken the marriage institution,” complains Afshin.

March 16, 2009

Hotel industry dreams of sunnier times

By Roger Blitz

Published: March 15 2009 23:01 | Last updated: March 15 2009 23:01

Arne Sorenson is cheerful, and for good reason. Marriott International’s
finance director has just been promoted to president and chief
operating officer. And at a conference in Berlin last week, he was
predicting a bright future for the big players in the stricken hotel
industry.

“Within
10 years, one of us will have more than 1m rooms in our system,” Mr
Sorenson said, sitting alongside the chief executives of Marriott’s
biggest rivals: Hilton, Intercontinental Hotels Group, Starwood and Accor. They did not demur.

The
immediate outlook is nothing like as rosy. Revenues are plummeting;
hotel occupancy is spiralling downwards. Research by Smith Travel, the
hotels consultancy, shows occupancy levels on the slide in Asia,
like-for-like average daily rates more than 20 per cent down in January
in Europe, and revenues per available room for that month dropping 16
per cent in the Americas and 30 per cent in Europe.

“It is uniformly bad around the world,” said Chris Nassetta, Hilton’s chief executive.

Desperate
hoteliers are slashing room rates, ignoring the lesson of the last bout
of heavy discounting, which came in the aftermath of the September 11
terrorist attacks. It took years for hoteliers to restore their
pre-2001 prices.

Average room rates in London are down to about
£100 ($140) a night. Andrew Cosslett, IHG chief executive, said New
York’s luxury and upscale hotels were in a “frenzy” of price-cutting.
“The business just isn’t there,” he said.

Worse, the hotel
industry is confronted by a climate of public distaste at business
executives’ conspicuous consumption, such as their travel budgets. The
industry’s top brass flew straight from Berlin to Washington to plead
with US politicians to tone down their anti-travel rhetoric.

Two
years ago, everybody wanted to be in hotels. Blackstone, the private
equity group, pulled off a stand-out deal with its leveraged buy-out of
Hilton for $26bn.

Global hotel transactions were about $120bn in 2007. According to Arthur de Haast of Jones Lang LaSalle Hotels, “we are going to do well to get over $10bn” in 2009.

The
big groups merrily sold their hotels in return for long-term franchise
and management deals, which gave them multi-year annual fees and a cut
of revenues.

They became brand managers, rolling out new
lifestyle concept hotels. All they needed for growth was a pipeline of
new developments.

But credit-starved developers have all but shut off the pipelines. IHG’s big push into China is stalled.

Now,
hotel owners are feeling the pressure, particularly the highly
leveraged ones, and are looking to the big operators to “share the
pain”. Some hotel advisers predict a bloody year, as hotel owners miss
interest payments, while operators lose money on unwanted rooms. The
talk in Berlin was of five hotel chains going bankrupt this year.

So
why do executives of the big chains, like Mr Sorenson, sound so
relaxed? Precisely because they are so big and that however hard the
downturn hits the industry as a whole, the big guys are set to get
bigger.

But none of them likes seeing their development pipelines shutting down.

Frits
van Paasschen, Starwood’s chief executive, said it would this year open
80 to 100 hotels, projects that were well advanced by the time the
credit markets closed. “Beyond that, it’s in our governments’ and
bankers’ hands,” he said.

But what they lose in development
deals, the big groups expect to make up in independent hotels and
smaller chains converting to their powerful brands to stay in business.

“One of the advantages we have is a massive infrastructure,” said Mr Nassetta.

“Independent
hotels are looking for a safe harbour,” Mr Nassetta added. “It’s
foolhardy to assume we would make up 100 per cent of what we lose on
new builds with conversion, but we are starting to see a significant
impact with conversions.”

As for their owners’ problems, the big
groups mix soothing words and understanding with a cold blast of
reality. Mr Sorenson made clear there would be no compromise.
Underpinning the robust stance of the big groups is the firm belief
that the laws of supply and demand are in their favour.

However
difficult it may prove this year to find customers, and however low
prices may fall in the short term, travel forecasters say the
medium-term and long-term scenarios are of globalisation creating a new
and substantial wave of travellers, particularly in emerging markets
such as India and China.

“There will be 1bn entering the middle
classes in the global economy,” said Mr van Paasschen. “Our least worry
is selling these rooms.”

March 15, 2009

Tax havens exist because of the hypocrisy of larger states

By John Kay

Published: March 20 2009 20:00 | Last updated: March 20 2009 20:00

By
the pool of my French house in Menton, I often contemplate the economic
consequences of the least-known uprising of Europe’s year of
revolutions in 1848. The citizens of Menton and Roquebrune wrested
independence from the neighbouring principality of Monaco. The
rebellion ended six centuries of Grimaldi rule. The result deprived the
state of its agricultural hinterland and cost the Grimaldi dynasty the
major part of its revenues.

Prince Florestan hatched a scheme
with the entrepreneur, François Blanc, to restore the family fortunes.
Blanc built a casino on the hills of Monte Carlo opposite the royal
palace, where punters could indulge in games of chance that were
illegal in France and many other European states. The venture had a
shaky start, but a new railway brought visitors from across the
continent. Gambling made the tiny state prosperous.

Florestan and
Blanc brought the concept of the sanctuary, or haven, to economic
policy. A small jurisdiction attracts business by implementing a more
liberal fiscal or regulatory regime than its neighbours. Smugglers and
pirates had occupied territories for centuries, but their activities
were outside the law, and anyone who dealt there did so at real risk to
their property and person. The haven provides the apparatus of the
legal state while enabling its clients to escape the inconveniences of
regulation and taxation and unwanted attention to their affairs.

Doing
business in a haven is expensive. In the 19th century, the rail fare to
Monte Carlo was substantial. Today the costs of establishing an
offshore company or trust put such arrangements out of the reach of
ordinary people. So the clients, individuals and corporations are
necessarily affluent. Since the disreputable simply disregard the law,
and the morally upright observe its spirit as well as its letter, the
customers of the haven are respectable, but not very respectable,
citizens – the gambling aristocrats of the 19th century, the tax exiles
of today. Monaco has never shaken off Somerset Maugham’s tag of “a
sunny place for shady people”.

From its inception, the existence
of the haven depended on the hypocrisy of its larger neighbours, which
tacitly acknowledged the utility of the haven as a safety valve. Their
politicians could denounce excesses of wealth and proclaim the need to
regulate improper or immoral behaviour, but their rich and famous
citizens could always ensure that the restraint on them did not become
too onerous.

Governments can make life difficult for the havens
or for the people who use them. But they rarely do. After decades of
pontification, only mild bullying was needed to persuade Switzerland,
the most respectable and most powerful of havens, to modify its banking
secrecy. The Monaco casino project would have been stillborn if there
had been genuinely principled opposition from neighbouring states.
Monaco, then and now, is completely dependent on France for its
physical infrastructure and on the European financial system for its
financial infrastructure. Minor harassment of returning visitors, and a
more determined refusal to co-operate with companies that did business
in the haven, would have ended the project.

People are willing to make agreements under the laws of
Bermuda, not just because they know that the laws of Bermuda are not
very different from the laws of England, but also because they also
know that the consequences of agreements made under the laws of Bermuda
will be enforced by the courts of England. Such formal recognition is
the essential difference between dealing with a haven and dealing with
smugglers, and a difference that exists because we choose to facilitate
it.

Few managers of hedge funds based in St James’s in London or
Connecticut could locate their registered offices on a map. Many havens
are islands, which is why we use the term offshore. Most are under
present or former British jurisdiction, accidental relics of empire and
naval power. The territories have been allowed, even encouraged, to
reduce their dependence on British government aid by attracting global
financial services activity. With great success, in many cases. The
tiny population of the Cayman Islands has a per capita income well
above that of the mother country.

So when the haven falls into disrepute – as recently in the Turks and Caicos
Islands – it falls to the British government to sort it out. If you
operate in the penumbra of legality, as havens do, it is easy to slip
outside the bonds of legality altogether. Where there is legal
avoidance of tax and regulation, illegal avoidance of tax and
regulation is rarely far behind, and often hard to distinguish: where
there is secrecy the motive is frequently impropriety; where there is
impropriety, criminality is rarely far behind, and hard to distinguish.
To turn a blind eye to avoidance of the law is to undermine all law.

Today’s
political outrage is humbug. Havens exist only because larger states
allow them to exist, and larger states allow them to exist because the
customers of havens are the rich and powerful. In the 1860s, the
typical client of a haven was a patron of Blanc’s casino: in the years
after 2000, the typical client of a haven was a hedge fund registered
in Grand Cayman. Plus ça change, plus c’est la même chose.

John Kay’s latest book, The Long and the Short of It, was published in January

Onshoring taxes

Published: March 13 2009 20:11 | Last updated: March 13 2009 20:11

The
very rich, as F. Scott Fitzgerald unstartlingly observed, “are
different from you and me”. For a start, they will always find
somewhere to secrete their money from the taxman. But that just got a
lot harder.

On Friday, the Swiss
government said it would adopt standards for tax co-operation set by
the Organisation for Economic Co-operation and Development. Whichever
way this is dressed up, that means sharing more information on
suspected tax evaders. Luxembourg said it would also make life more
difficult for tax dodgers. On Thursday, the principality of Liechtenstein
and tiny, opaque Andorra discovered the virtues of complying with OECD
standards. Even Monaco, a particular bête noire of the OECD, is
reviewing its position. All this comes hard on the heels of moves by
other offshore centres, including Singapore, Hong Kong, Jersey and the Isle of Man, to open up.

“We
are currently experiencing a fundamental and rapid change at the global
level in the direction of stronger cross-border co-operation and
international regulation,” observed Prince Alois, ruler of
Liechtenstein. Well spotted, sir.

Germany has taken to using its
spies against tax havens such as Liechtenstein that lurk on its borders
and siphon off its revenues. The US has mobilised its justice system,
last month extracting a $780m penalty from UBS. But as the financial
meltdown turns into recession and starts shaping up into a violent
fiscal crunch, everywhere the cry has gone up against the “pinstripe
pirates” and “parasites” believed to hold some $11,000bn in clandestine
personal wealth.

Next month’s Group of 20 summit in London, promising a crackdown on tax havens, has acted as a catalyst to co-operation.

In
theory, the position should be clear. There can be no objection to tax
competition or legal tax avoidance. Nor should there be any tolerance
of tax evasion, amounting to stealing from one’s fellow citizens.

In
practice, big countries will find it easy to beat up little enclaves
living on their (borderline legal) wits, while indulging in similar
(borderline legitimate) practices. The UK, for example, has overseas
territories and dependencies that rival Switzerland in private wealth
management. Both groups will find the current climate makes it harder
to provide shelter from the taxman.

Offshore banking

Published: March 13 2009 09:20 | Last updated: March 13 2009 22:57

Where
can the rich put their fortunes now? Offshore banking is under renewed
attack in the run-up to next month’s G20 meeting, where tax evasion is
on the agenda. As the global downturn slashes tax receipts, governments
are doubly keen to close loopholes that allow the wealthy to evade
their taxes.

It is easy to see why: the Organisation for
Economic Co-operation and Development estimates that $11,500bn lurks
offshore. Some havens have already caved in to OECD pressure. Andorra,
Liechtenstein and even Switzerland this week agreed to relax banking
secrecy laws and share limited client information with foreign tax
authorities. Germany, for example, has long waged a sustained campaign
against Liechtenstein to track down German tax-evaders who stashed
their cash in Vaduz. This follows the US’s success in extracting a $780m fine from UBS, Switzerland’s largest bank, for its role in helping US clients dodge the Internal Revenue Service.

To
be clear: tax evasion is only one reason why someone might want to
secrete their money offshore. Indeed, there is a moral argument that
people should be able to do so. Swiss bank secrecy laws, after all,
were introduced in 1934 in part to protect German trade unionists and
Jews from the Nazis, who punished offshore account holders with prison,
or worse. The wealthy are also as entitled as any to protect themselves
and future generations from the runaway inflation, exchange controls
and worthless currencies that can accompany oppressive, or simply
incompetent, regimes. Ask any number of South Americans.

As
governments hound offshore banking centres for mostly sound reasons,
they should take care not to take an indiscriminate approach that
extinguishes them altogether. The very presence of offshore banks is a
stick across the backs of repressive governments everywhere.

BACKGROUND NEWS

Switzerland,
Austria and Luxembourg each made concessions on bank secrecy on Friday
following earlier initiatives by other offshore banking centres,
including Liechtenstein and Andorra, in response to a global crackdown
on tax evasion ahead of the G20 meeting in London next month.

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UK hails 'beginning of end' for tax havens

By Vanessa Houlder

Published: March 14 2009 02:00 | Last updated: March 14 2009 02:00

A
cascade of concessions on tax secrecy by some of the world's leading
private wealth centres has been hailed as a breakthrough in a
decade-long international assault on evasion.

Gordon Brown, British prime minister, talked yesterday about "the beginning of the end of tax havens".

The
pursuit of tax evaders by foreign countries will be made easier by the
promises of greater co-operation by Switzerland, Austria, Luxembourg,
Hong Kong, Singapore, Liechtenstein, Andorra and others. They have
bowed to pressure by adopting international standards on transparency,
although insisting they will continue to protect investors' privacy.

Richard Hay of Stikeman Elliott, an international law firm, said "Switzerland's capitulation to the OECD is a game-changer".

The
anti-tax haven initiative led by the Organisation for Economic
Co-operation and Development has been stymied by charges of hypocrisy.
The tiny islands and states accused of harbouring undeclared money
deflected attacks by pointing out that similar charges could be
levelled at OECD member states such as Switzerland as well as Asian
financial centres such as Hong Kong and Singapore.

Concessions by
big players such as Switzerland and Singapore rip that defence away
from the remaining offshore centres such as Panama that cling to
secrecy. They also dilute the threat that the closure of one haven will
simply divert money to another.

The moves pave the way for
intense pressure to be applied to the remaining hold-outs. Angel
Gurría, secretary-general of the OECD, noted that "many jurisdictions
still maintain arrangements that prevent them from assisting foreign
authorities in tax investigations". Offshore centres reluctant to
co-operate with foreign tax authorities face the threat of being
"blacklisted" at next month's London summit. Sanctions ranging from
higher withholding taxes to restricting banking transactions could be
applied.

But critics of tax havens are sceptical about the OECD's
initiative. Foreign tax authorities wanting to take advantage of tax
information exchange agreements need to supply evidence of their
suspicions. If they have no "smoking gun", they will be unable to
extract information. More-over, the bilateral deals on information
exchange rarely help developing countries chase down evaders. Oxfam,
the charity, said this week that losses from offshore evasion may cost
developing countries more than they receive in foreign aid.

Bankers
and lawyers in the finance centres affected by this month's
announcements have been keen to emphasise the limits to the
concessions. Jean Schaffner, a Luxembourg partner of Allen & Overy,
said the state's proposals were a "good compromise between the need to
co-operate with foreign tax administrations and the desire to preserve
privacy". Fears that foreign authorities could make "blanket requests"
for information were not realised.

Moreover the crackdown on
evasion does not tackle complex issues concerning corporate use of
offshore centres, which companies often favour for their tax-neutrality
and legal structure. The US administration has promised action against
avoidance by US companies using tax havens.

Offshore centres are
also anxiously eyeing anti-tax haven bills introduced in both US Houses
of Congress last week, which were endorsed by Timothy Geithner,
Treasury secretary, who promised "a much more ambitious effort to deal
with offshore tax havens".

The legislation listed 34 "secrecy
jurisdictions", although there was provision for jurisdictions to be
removed if they have "information exchange practices that effectively
overcome those secrecy barriers".

Offshore centres are also
braced for a new attempt by the European Commission to close loopholes
in the Savings Directive, its 2005 anti-evasion legislation. The
Commission is keen to extend its geographic reach to ensure that
evaders do not simply shift their money to centres such as Hong Kong,
Singapore and Dubai.

Some offshore centres said yesterday they
hoped that the political furore over tax havens before next month's G20
meeting might die down. Geoff Cook of Jersey Finance, which represents
Jersey's finance industry said the concessions: "will defuse it to a
large degree." But some influential politicians were guarded yesterday
about the impact of the concessions.

Christine Lagarde, French
finance minister, warned that "the devil is in the detail". She said:
"We must go all the way and see if banking secrecy is sufficiently
lifted."